Los Angeles, a vibrant city known for its thriving economy and diverse business landscape, continues to be a prime location for commercial real estate investments.
Whether you want to purchase office space, retail property, or industrial real estate, securing a commercial mortgage in Los Angeles can become a complex process—but it doesn’t have to be.
Our commercial mortgage guide for the Los Angeles area will walk you through the core aspects of commercial mortgages in this dynamic city, helping you make better-informed decisions for your business.
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Understanding commercial mortgages
Commercial mortgages are essential tools for many businesses.
They are specialized loans secured by a commercial property, such as:
- An office building
- Retail space
- Warehouse
Unlike residential mortgages, commercial mortgages are specifically designed for income-generating properties used for business purposes.
These loans typically have different terms, interest rates, and qualification criteria than residential loans.
Types of commercial mortgages
In Los Angeles, various commercial mortgages are available to suit different needs and property types.
Understanding these options is very important if you choose the right loan for your business.
Traditional commercial mortgages
- Most common types of commercial loans—usually offered by banks and credit unions
- Fixed or variable interest rates and terms ranging from five to 20 years
- Require a substantial down payment, typically 20% to 30% of the property’s purchase price
Small Business Administration (SBA) loans
- Guaranteed to a certain extent by the government, an aspect that can work in favor of some small businesses
- The two primary types of SBA loans are:
- The 7(a) loan: used for various purposes, including real estate
- The 504 loan: specifically for purchasing fixed assets like real estate and equipment
Bridge loans
- Short-term financing—ideally, when you need to purchase a new property but need financing before you can sell your old one to pay for it
- Typically one-to-two-year terms
- Higher interest rates
- Ideal for businesses needing quick access to funds to seize an immediate opportunity
Hard money loans
- Offered by private lenders and are based on the value of the property rather than the borrower’s creditworthiness
- Short-term loans, usually one to three years
- Flexibility and dynamic processing generally mean it will have higher interest rates compared to traditional lending products
- Often used for properties in need of significant renovation or for borrowers who cannot qualify for traditional financing
- Accommodating when it comes to the underwriting. Hard money lenders dont generally need the same financial requirements like a bank does
- Can fund a loan within weeks of reaching out
Key factors to consider
When seeking a commercial mortgage in Los Angeles, several key factors can influence whether your loan is approved and its terms.
Creditworthiness
Lenders will examine your credit history, more specifically at the historical late payment history, to ensure that a borrower does pay their debts on time, every month.
Strong credit scores and solid financial statements increase borrowers’ chances of securing favorable loan terms.
Down payment
Commercial mortgages require a significant down payment—often between 20% and 30% of the property’s value.
On the positive side, a higher down payment reduces the amount you’ll need to borrow and your monthly payments.
Property type and location
The type and location of the property play two of the biggest roles in securing a commercial mortgage.
Properties in prime locations, such as downtown Los Angeles, are often considered less risky and can qualify for better loan terms.
Additionally, the loan terms will be impacted by the commercial property’s intended use, whether office space, retail, or industrial.
Debt service coverage ratio (DSCR)
DSCR measures a property’s ability to cover its debt payments by generating enough income. This allows for a borrower to not have to come out their pocket every month to make the payment.
Lenders prefer a DSCR of at least 1.25, which indicates that the property can generate 25% more income than needed to cover the debt.
Steps to secure a commercial mortgage
Securing a commercial mortgage in Los Angeles involves several steps, from preparing your application to closing the loan.
Prepare your financial documents
Gather all necessary financial documents, including:
- Tax returns
- Business financial statements
- A detailed business plan describing what the property is used for and what the loan proceeds will be used towards
These documents give lenders a comprehensive view of your financial health and business prospects.
Choose the right lender
Research and compare lenders to find the best fit for your needs.
Consider factors such as:
- Interest rates
- Loan terms
- The lender’s reputation
Connecting with a lender experienced in commercial real estate in Los Angeles can provide valuable insights and smoother transaction processes.
Submit your application
Complete the loan application and submit it along with your financial documents.
Be prepared to answer any questions from the lender and provide additional information if requested.
Appraisal and underwriting
An appraisal will be ordered by your chosen lender to determine the property’s value.
After that, an underwriting process assesses your creditworthiness and the property’s potential income.
For traditional loans, these steps can take several weeks and may involve site visits and detailed financial analysis.
Loan approval and closing
Once the lender approves your loan, you will receive a commitment letter outlining the terms. Make sure to review the terms carefully and address any concerns before signing.
After signing, the loan will proceed to close, where the final documents are signed, and closing costs are paid.
Commercial mortgages in the Los Angeles area: Conclusion
Securing a commercial mortgage in Los Angeles is a multifaceted process that requires detailed planning and consideration.
Understanding the types of loans available, key factors influencing loan approval, and the steps involved can help you navigate this process effectively.
By being well-prepared and working with experienced LA real estate lending professionals, you can secure the financing needed to grow your business and capitalize on the vibrant commercial real estate market in Los Angeles.
Hard money loans can help save your business
One of the most useful aspects of a hard money lender for securing a commercial mortgage is the speed at which you can be approved.
Finding the right property for your business is a tricky concept. And when you do—you need to move fast.
Reach out to Marquee Funding Group today with your commercial mortgage idea so we can figure out the best solution.
When the time comes to secure the right property, you know you can proceed confidently.